“One may plant a tree for a number of reasons. Perhaps they likes trees. Perhaps they wants shelter. Or perhaps they know that someday they may need the firewood” — Joanne Harris
A pension can be defined as an allotment into which a measure of money is augmented during a staffer’s service years and which expenditures are drawn to fund the person’s retirement from work in the form of cyclic incomes. A recipient of a pension or retirement plan is called a pensioner or retiree. Companies and all tiers of the government procure pensions for their staff.
In Nigeria, the defined contribution scheme was introduced in the year 2004 under the Pension Reform Act, where the employer contributes 10% of her/his salary and the employer contributes 8%. The employee ends up receiving the money when retired. According to statistics, most of Nigerian’s labour force is without a pension policy, of over 69 million people in the labour force, only about 7 million can boast of pension accounts.
Employees are not allowed the privileges to a pension, not until they retire or clock 50. So if you retire before 50, you’ll have to wait it out and also, if you’re still working at 50, you wouldn’t be granted access until you retire. In this article, you would be shown how to calculate your pension and everything you need to know about your pension contributions, the dos and don’ts and how to construct a better future around it.
It was already mentioned above about the 10% employer and 8% employee contributions, but what most employees don’t know is that it can be increased either by the employer, employee or both. Being able to calculate pension should be an added skill every Nigerian labour force should acquire.
Let’s take an example for starters;
● If Oge makes N800,000 while she works for Moonwalks Ltd, Moonwalks Ltd is presumed to contribute a minimum of N80,000 to the policy monthly, while Oge contributes a minimum of N70,000 to the policy monthly, every month until she retires. If Oge or Moonwalks Ltd so wish, they can choose to boost the percentage they contribute monthly, however, they can not render anything less than 8% and 10% respectively. If Moonwalks Ltd chooses to be generous and bears the full responsibility towards paying Oge’s pension, the PRA in this scenario says they would have to pay at least a minimum of 20% of Oge’s pay monthly for the entire monthly emoluments.
● Now, if Oge works for Moonwalks Ltd for 25 years and her average salary is #500,000, her pension after would sum up to a total #2,250,000.
When she retires, she can decide on how the money should be paid to her and there’re various options:
1. Withdrawing on a monthly or quarterly basis
2. Withdrawing a bulk sum, only if there is enough to be withdrawn from in the future (should be around 25–50% of the money in her retirement account).
In summary, an employee contributes 8% of their monthly pay and the employer contributes 10%, this can be increased by both parties as time goes or the employer can choose to cover all contributions. At retirement age (50 or more), you can choose how to access your pensions.